Mergers Help Airlines, Not Consumers
KATHLEEN SCHALCH: This is Kathleen Schalch.
The merger also faces some obstacles in Washington. The Justice Department will have to decide whether it violates antitrust laws. And the deal had some powerful foes on Capitol Hill including Minnesota Democrat Jim Oberstar. He chairs the House Transportation Committee.
Here's how he describes it.
Representative JIM OBERSTAR (Democrat, Minnesota; Chairman, House Transportation Committee): Probably the worst development in aviation history in the aftermath of deregulation in 1978.
SCHALCH: And he says, here's why.
Rep. OBERSTAR: There will be a cascade of mergers.
SCHALCH: Airline analysts agree that the deal will put pressure on other airlines. Michael Levine is industry experts and law professor at NYU.
Professor MICHAEL LEVINE (Airline Industry Expert; Law, New York University): There is no doubt that every management of a major airline in the country is sitting around right now sort of scratching their heads wondering who, if anyone, they should be trying to merge with.
SCHALCH: Continental and United could be next. With fuel prizes so high, many airlines see no alternative. They aren't making any money, and they've already slashed payrolls. Bill Swelbar is with MIT's International Center for Air Transportation.
Mr. BILL SWELBAR (Research Engineer, MIT's International Center for Air Transportation): The low-hanging fruit in the expanse area has been picked. And so now we must begin to look at the consolidated industry.
SCHALCH: He says that way, carriers could pare cost even more by cutting headquarters staff, for instance, paying one marketing department instead of two. The flight schedule could be extended as well, but Swelbar says this isn't necessarily bad. He cites his own travel options.
Mr. SWELBAR: I live in Greenville-Spartanburg, South Carolina and I'm trying to get to Los Angeles. Well, today, I have arguably 25 choices across multiple airlines and multiple hubs. And there's only 100 passengers a day traveling between that particularly city pair.
SCHALCH: He says this is duplication the industry can ill afford. But will mergers allow the major airlines to dominate markets and jack up prizes? Swelbar says that's less of a worry nowadays, because low-cost carriers will fill the void.
Mr. SWELBAR: Arguably, the low-cost sector today provides competition and prize discipline to more than 90 percent of the demand in the domestic market. That's different than at any point in history.
SCHALCH: Congressman Oberstar isn't convinced. He says there are lot of cities that low-cost carriers don't deserve. He predicts the mergers will continue with both foreign and domestic carriers rushing to consolidate.
Rep. OBERSTAR: And you'll have three global mega carriers. In the face of that economic power in the marketplace, the so-called low-fare carriers will not be able to compete.
SCHALCH: He predicts lost jobs and fewer flights especially at the ends of the spokes in the hub-and-spoke system. But industry analysts say airlines may have to curtail service to small and medium-sized cities anyway, and not being able to cut costs will make that even more likely.
Kathleen Schalch NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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